A Virginia developer was sentenced to 11 1/2 years in federal prison for a bank fraud scheme, which contributed to the collapse of Bank of the Commonwealth, and for his role in a historic-tax-credit scheme, the ""Office of the Special Inspector General for TARP"":http://www.sigtarp.gov/Pages/home.aspx (SIGTARP) announced in a release Wednesday.[IMAGE]
Eric H. Menden, 53, of Chesapeake, Virginia, pled guilty to conspiracy to commit wire fraud, making false statements, and conspiracy to commit bank fraud on April 20, 2012.
Overall, the bank fraud scheme cost the Bank of Commonwealth $41 million. The bank was closed by regulators in September 2011. The tax fraud scheme cost state and federal governments more than $12 million and investors more than $8 million.
According to the release, starting in 2008, Menden and his business partner, George P. Hranowskyj, worked with Bank of Commonwealth insiders to buy underperforming bank-owned properties. In exchange for preferential lending treatment, the release stated Menden and his business partner performed favors for bank insiders and assisted the insiders by purchasing bank-owned properties to mask the extent of non-performing assets held by the bank.
The loans would then typically get written off at a significant loss. At the request of a bank insider, Menden and his partner also bid on properties at foreclosure auctions up to a specific price so that the bank could pay off the underlying loan for the properties, SIGTARP stated.
As for the tax fraud scheme, starting in 2006, Menden and his partner borrowed funds to buy and renovate properties that were eligible for historic rehabilitation tax credits.
As Menden and his partner renovated properties, they also applied for federal and state historic tax credits, which were sold to investors who wanted to reduce their tax liability.
Menden and his partner received about $8.7 million from corporate investors for the illegitimate tax credits, and the scheme resulted in a loss of $6.2 million for the federal government and $6.3 million for Virginia.
Hranowskyj, 47, of Chesapeake, Virginia, pled guilty on July 12, 2012, and faces a maximum of 20 years in prison for conspiracy to commit wire fraud and a maximum of five years in prison for conspiracy to commit bank fraud. He will be sentenced Oct. 15, 2012.